Not even a bull market can interest people in stocks

Opinion: Equity ownership falls to the lowest level in over half a century

By

HowardGold

Columnist

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How often have you heard some Wall Street shill talking about all the cash on the sidelines waiting to come back into the market? Or some pundit worrying that too many investors have rushed into stocks, signaling an imminent sell-off?

Well, now, we can safely ignore those claims and others like them. An authoritative new study published recently in the Financial Analysts Journal shows that all investors — individuals and institutions alike — are keeping the lowest percentage of their portfolios in stock in over half a century.

According to three Dutch researchers — Ronald Doeswijk, Trevin Lam and Laurens Swinkels — investors held only 37.7% of the $90.6 trillion in global investable assets in stocks in 2012, the most recent year their data covered.

That and the 37.1% they invested in equities in 2011 were the lowest exposure to equities investors have had since 1959, when records were first kept. It’s considerably below what they held even in the late 1970s, before the Reagan-era bull market began, and in the early 2000s after the dot.com bubble burst.

In fact, there may be cyclical and structural reasons for this shift, according to Lam, senior analyst in quantitative research at Rabobank, based in the Netherlands.

“I do think that the changes in the global multi-asset market portfolio are cyclical,” he told me in an email. “There are periods in which the weight of equities increases at the expense of bonds … [but after the dot.com bust] the weight of bonds rose quickly at the expense of equities.”

Equity ownership peaked at around 64% of the total global market portfolio in 1968 and again in 1999, near the top of two great secular bull markets.

Yet it never exceeded 53% during the mid-2000s cyclical bull market. To me, 2011-2012’s low numbers show that, though the S&P 500 and other indices are hitting all-time highs, investor confidence still hasn’t recovered from the dot.com bubble and the financial crisis.

As I wrote here late last year, surveys showed a steep decline in the percentage of Americans who said they owned stocks or stock mutual funds.

But there are big structural changes as well, Lam told me.

First is the alternative asset revolution, pioneered by David Swensen at Yale University and Jack Meyer at Harvard.

University endowments and other asset managers have drastically reduced their holdings in traditional stocks and bonds, investing instead in such formerly exotic asset classes as private equity, hedge funds and timber land.

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